And Washington Mutual CEO Kerry Killinger lost one of his jobs today, giving up his position as chairman as a concession to grumbling shareholders steamed about the Seattle bank’s warning that it will post another $19 billion in losses from home loans in the next three years. WaMu also raised $7 billion this year.

Other capital infusions also failed to make CEOs look good: Bear Stearns’s $1 billion swap-infusion agreement with China’s Citic Securities, which didn’t placate Bear’s investors, didn’t boost its capital and certainly didn’t save the firm; and Citigroup’s $30.4 billion in capital infusions and public offerings failed to comfort investors until new CEO Vikram Pandit provided more financial details last month.

Sure, each of these money IVs helped stabilize the bank’s balance sheet, but such solutions aren’t a panacea, and the cost is still high.

So what does this tell us? Perhaps most surprisingly, it tells us that capital infusions aren’t necessarily like scoring on the Hail Mary pass. To extend the football analogy: though fans may be satisfied with the win, the coach of the winning team still can get labeled as a bad coach for his team’s falling behind in the first place.

Most of all, it highlights the bind bank CEOs are in right now. They can do no right. Washington Mutual, for instance, sought a a merger partner before bellying up to the capital tap. National City did the same. Options didn’t exactly abound. So in that situation, weren’t capital-raisings a prudent solution? Shareholders might chide: if only the banks had shown that kind of prudence earlier.

Comments (5 of 6)

Banks would not need so much capital infusion if they did not pay their CEOs so much. Paying too much to the CEO-types hurts morale of employees, encourages them to take undue risks to meet short-term bonus-driven goals and ultimately causes demise of any organization. Capital infusion is nothing but replenishment of assets stolen in the process of overpayment to the CEOs and decreased productivity of the demoralized employees.

6:54 pm June 2, 2008

jimsep wrote :

Capital infusions should not save the CEO. What is the CEO of Sovereign Bank still doing there? So far the axe fell only on the CFO. But the man who presided over the destruction of a lot of shareholders' wealth still sits there.

Editor Comment

4:15 pm June 2, 2008

Heidi N. Moore wrote :

@seattle: Thanks for noticing that. Two of the paragraphs were transposed as the piece was condensed.

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